Cell tower lease sold?!

[Zander Kempf]

Here is an interesting one for you:

I have a 4-plex under contract that currently has a cell tower on the roof. Looking at the disclosures, the owners set up leases to telecom companies for the tower and then sold the leasing rates for the next 30 years for a lump sum to a third party. The annual lease rate was 20K and they sold it 10 years ago for 300K. now that I am purchasing the property and the leasing rate has already been sold I feel as though I am missing out on a significant revenue opportunity and assuming a lease that I'm not getting paid for. The numbers for the property are solid with some value add opportunities so the deal is certainly worth doing, it just seems like we're leaving money on the table. Any suggestions?

[Eamonn McElroy]

There's a school of thought that would suggest you analyze the deal by ignoring the cell tower dynamic. Is it a compelling investment on its own? I.e. does ROI meet your hurdles after being adjusted for risk ignoring the cell tower dynamic? If yes, then you should just move forward. Focusing on the cell tower is just an anchoring heuristic.

There's a second school of thought that would suggest that lease has 20 years remaining on its term and you should ask for the net present value of the 20 years remaining to as an offset of purchase price to compensate you for binding yourself to the cell tower lease as a successor owner of the property (and thus successor lessor).  Through negotiation you may end up settling on a figure that is less than NPV.  There is risk here that you will be seen as a less favorable buyer and quickly passed over, especially if there is a line of buyers who don't think like this and will treat the property as just another property.

If you have further questions, best to run them by your professional advisors.